Australian Prime Minister John Howard has announced a shift in policy on climate change, promising to set up a carbon trading scheme to cut pollution.

Mr Howard said he would set a target next year for limiting greenhouse gas emissions and also pledged to put in place a carbon trading scheme by 2012.

Australia is one of the worst polluters per head of population in the world.

Despite his new plans, Mr Howard has warned that setting a cap on carbon emissions would hurt the economy.

His announcement comes ahead of a national election later this year, in which Mr Howard will be seeking his fifth consecutive win.

If we get this wrong it will do enormous damage to the economy

John Howard

The opposition Labor party, which has a strong lead in the opinion polls, has portrayed the government as dithering and backward-looking on global warming, reports the BBC's Phil Mercer in Sydney.

Labor has pledged to cut greenhouse gas emissions by 60% by 2050. Mr Howard does not plan to reveal his targets until next year, once the economic costs of carbon trading have been fully studied.

"Implementing an emissions trading scheme and setting a long-term goal for reducing emissions will be the most momentous economic decision Australia will take in the next decade," Mr Howard told an annual meeting of his Liberal Party.

"If we get this wrong it will do enormous damage to the economy, to jobs and to the economic well-being of ordinary Australians, especially low-income households."

'Better scheme'

Australia and the US are the only major industrialised nations not to ratify the 1997 Kyoto Protocol on cutting greenhouse gas emissions.

Australian farmers have seen record droughts this year

Mr Howard promised that Australia's carbon trading scheme would be better than those in place in Europe.

Australia has recently seen record drought conditions, which have harmed economic growth and caused widespread despair among the farming community.

Residents have been ordered to cut back on consumption and farm production has plummeted.

Some experts believe that these parched conditions are the result of the world's hunger for fossil fuels, while others though see it as part of a natural cycle.

Whatever the arguments, many Australians want their leaders to be far more proactive when it comes to the environment, our correspondent says.